In Systemic Sclerosis (SSc), interstitial pulmonary fibrosis is frequent (80%) and is now the leading cause of death. The mortality rate of patients with a forced vital capacity (FVC) <50% of predicted due to SSc pulmonary fibrosis is 40-45% within 10 years of SSc onset. Present evidence suggests that pulmonary fibrosis, which occurs early in the course of SSc, is usually preceded by inflammation which can be detected by examination of cells obtained by bronchoalveolar lavage (BAL). Uncontrolled series suggest that cyclophosphamide (CYC) may stabilize or improve lung function in SSc patients with active alveolitis. We propose to conduct a five- year, l3-center, parallel-group, double-blind, randomized controlled study of oral CYC (1-2 mg/kg/day) versus placebo to assess the efficacy of CYC in stabilizing or improving the course of FVC (as % predicted) in 163 patients with early SSc (within 5 years of clinical disease onset) who are already dyspneic (at least moderate functional impairment and perceived magnitude of task and effort on the Mahler Baseline Dyspnea Index), have an FVC equal to or <85% of predicted and exhibit active alveolitis defined as equal to or >3.0% neutrophils or equal to or >2.0% eosinophils in BAL fluid. Secondarily, we will assess the impact of CYC on quality of life (SF36), functional activity (SSc Health Assessment Questionnaire), dyspnea (Mahler Transition Dyspnea Index) and diffusing capacity for carbon monoxide (DLCO) in these patients. Patients will be recruited for study during the first 3 years (from 6 mos. to 2 yrs, 9 mos) of the 5-year project period. Randomized participants will be treated with study drug for 1 year and followed at 3-month intervals for 2 years. Overall study coordination and data collection, management and analysis will be centralized at UCLA. Proven methods for analyzing time-oriented data employed by the investigators in previous controlled studies of scleroderma will be used to evaluate whether oral CYC (1-2 mg/kg/day) is better than placebo a) in improving or preventing worsening of FVC (the primary outcome variable) and b) in improving or preventing worsening of quality of life, functional ability, breathlessness and DLCO (secondary outcome variables).